A practical Eric Garcetti takes a modest swipe at L.A.'s business tax

Mayor Eric Garcetti dropped no bombshells when he released his first budget Monday. The $8.1-billion spending plan was in line with the theme of his administration so far: focus on basic city functions, improve customer service, control costs and win back public trust. All in all, it’s a modest budget from an administration that takes pride in being prudent.

Most modest is his plan to trim the business tax. When the proposal was floated earlier this year, Garcetti was going to eliminate the business tax. Phase it out. Get rid of it. Businesses and entrepreneurs hate the city’s business tax because it’s significantly higher than almost all surrounding cities, and it’s based on gross receipts, not profits, so a company could be hit with a big tax bill even if it made no money that year. Most business groups have been lobbying for years to reduce or end the tax, and the most recent proposal was to phase it out over 15 years.

Yet on Monday, Garcetti’s proposal was, well, less ambitious. He wants to reduce the top business tax rate over three years starting in 2016. Currently, service businesses from barbers to accountants pay about $5 for every $1,000 in gross receipts. Under his plan, they would pay $4.25 per $1,000 in 2018. Even after the reduction, Los Angeles would still have one of the highest tax rates in the county. That doesn’t exactly scream “L.A. is open for business!”

Still, business groups were publicly thankful Monday for even this minor adjustment to the tax. Stuart Waldman, with the Valley Industry and Commerce Assn., said he was happy to see some business tax adjustment in the budget, no matter how incremental. (Garcetti still wants to phase out the tax eventually.)  

And at least this modest proposal has a good chance of passing the City Council, whose members have been skeptical of cutting one of the city’s major sources of revenue. The business tax is projected to generate $460 million next year, which is about 80% of the Fire Department’s budget.

Therein lies the Garcetti challenge: Should he propose more bold ideas and aggressive policy changes that have no chance of passing intact? Or should he temper public expectations by offering carefully vetted policies that are likely to come to fruition?

So far, it seems Garcetti has chosen the latter.


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